BHP Billiton has reached an agreement with the Australian Taxation Office (ATO) to settle a transfer pricing dispute relating to its marketing operations in Singapore. The settlement fully resolved the longstanding dispute between BHP and the Australian Taxation Office for the period 2003-2018.
For years, BHP has sold commodities its produces in Australia such as steelmaking ingredient iron ore to a Singapore marketing arm. This unit, which benefits from a trade agreement between the UK and the city state, then sells the raw material to customers around the world. While BHP claimed that its Singapore operations were at arm’s-length from its Australian branch, ATO hit BHP with transfer pricing assessments in connection with commodity payments to its Singapore marketing business.
Besides transfer pricing matters, The ATO accused BHP sold Australian minerals to its Singapore marketing hub to avoid paying taxes on profits of $5.7bn from 2005 to 2014. The involvement of Singapore marketing hub in the transaction was the focus of an Australian Senate hearing in 2015. The Senate Economics References Committee was looking into complaints of tax avoidance by multinational companies, with a special focus on the use of affiliated marketing organizations in low-tax jurisdictions such as Singapore.
As part of the settlement, BHP will pay a total of approximately AUD 529 million (around $386 million) in additional taxes for the income years 2003 to 2018, includes no admission of tax avoidance on its part. BHP has already paid AUD 328 million of this amount, following receipt of amended tax assessments and in accordance with the ATO’s normal practice. The ATO so far had sought $1.04 billion in assessments, interest, and penalties from BHP for the income years 2003 to 2013.
The settlement provides clarity for BHP (and other companies with similar marketing structure) and the ATO in relation to how taxes will be assessed and paid on the sale of Australian commodities.
Despite offshore marketing hub issue, BHP’s marketing operations will continue to be located in Singapore and remain an important part of BHP’s value chain. As of July 2019, BHP Group Limited will increase its ownership of BHP Billiton Marketing AG, which is the main company conducting BHP’s Singapore marketing business, from 58 percent to 100 percent. Thus, following the change in ownership, based on the agreement, all profits generated by BHP in Singapore on the company's Australian assets would be fully subject to Australian tax.
The change in ownership will provide certainty for BHP and the ATO regarding the Australian taxation treatment of BHP’s Singapore marketing business for future years.
Source: Broken Hill Propriety
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